Tyre Manufacture in SA – Will it Have a Future?

The South African business sector is applauded the world over for its unflinching work ethic, its determination to succeed against all odds and its uncanny ability to come up with creative solutions whenever the occasion demands it. Nowhere is this more evident perhaps than in the tyre manufacturing segment. Rocketing oil prices, unstable currency, raw material shortages and subsequent price hikes, not to mention the seemingly relentless infiltration of foreign makes landing at suspiciously rock-bottom prices, have all taken their toll on our four domestically-based tyre makers. How are they meeting these challenges? Is tyre manufacturing in this country sustainable or can it expect to meet a similar fate to that of nations like Australia which has seen the demise of local industry in favour of low-cost imports?

Anti-dumping petition is unsuccessful
To add fuel to the fire, government’s decision to terminate the investigation into the alleged dumping of tyres imported from China, is considered a further setback for the South African tyre manufacturing industry.

ITAC in their recommendation to the Minister of Trade and Industry concluded the industry was suffering material injury in various areas including price undercutting, decrease in sales volumes and capacity utilisation and decrease in production employment. They also found that dumping of unrealistically cheap imported tyres was indeed taking place. Regrettably, government recently saw fit to conclude this investigation.

“Bridgestone SA is very disappointed with government’s decision to terminate the investigation into the alleged dumping of tyres imported from China,” claimed GM Public Relations, Romano Daniels. “The reason we were given was they could not prove a direct link between the dumping and the problems being experienced by the new tyre industry. Despite the many factors at play, Bridgestone is of the opinion that the provisional duties applied by SARS on certain Chinese imports since July last year, have been a major contributor towards stabilising the market.”

“The latest decision to cancel the anti-dumping duties will have a negative impact on the tyre industry in South Africa,” continued Daniels. “The industry is already highly competitive and an unhealthy price war caused by unrealistically cheap imported tyres could result in significant job losses in the manufacturing sector.”

“All the industry expects of government is to provide a level playing field,” concurred Dr Luis Ceneviz, newly appointed CEO of Dunlop Tyres SA. “As an industry we cannot afford to give up the fight which is why we are collectively submitting a letter to the Minister challenging some of the views that may have been put before him in an attempt to reinforce what’s at stake.”

Claudio Boezio, managing director of Port-Elizabeth based Continental Tyres agreed. “It is imperative that we continue to engage government if we are to achieve level playing fields. One must bear in mind that whilst it may be possible for a nation like China to produce and sell its product at ridiculously depressed prices due to the fact that it is a state-owned entity with no shareholders to account to, the situation in South Africa is a whole lot different. It is hoped the recent dissolution of the textile industry which resulted in thousands of people losing their jobs, will serve as a worthy example of the long-term implications of allowing a free-trade scenario to exist within any industry in a developing country like South Africa,” said Boezio.

“A demise of the local tyre manufacturing industry would have devastating socio-economic consequences,” echoed Derek de Villiers, managing director of Goodyear SA. (read more in our exclusive interview with Derek de Villiers on page ??)

“And not only in terms of job losses,” added Bridgestone’s Daniels. “Closure of local manufacturing plants would also subject the consumer to global economic forces that ultimately, could have a potential impact on the affordability of vehicles. Bear in mind, we are merely a component of the automotive industry at large and the loss of the local automotive manufacturing sector would be unthinkable. Not only would this negatively impact national GDP and result in job losses in the region of half a million employees, it would mean losing control of our own home market!”

“The tyre and automotive industries are inextricably linked,” agreed de Villiers. “Locally produced tyres are essential for supply to the local automotive industry and there is no feasible way the one can be sustained without the support of the other.”

“Nor can we afford for strategic agencies in South Africa such as the military to rely solely on imported product,” added Mike Hankinson, outgoing CEO, Dunlop.

The question that remains is how will government’s political agenda which is focusing on strengthening trade ties with China, influence future decisions regarding trade barriers and protection of local industry? More to the point, will they decide the potential socio-economic casualties are worth the pursuit of this seemingly well-entrenched trade policy?

Imports and the long-term picture
The issue at hand sparks further debate. Precisely what kind of effects are cheap imports having on the market?

Clearly the local tyre makers are finding it increasingly difficult to compete on price, particularly as they are not prepared to compromise on the quality or safety of the products they produce. That said, the availability of significantly cheaper foreign makes is placing even greater pressure on a price-conscious market driven by consumers that are scarcely aware of the possible dangers of buying a questionable ‘cheapie’. This is not to say that all foreign makes, whether they come from China or not are sub-standard, but a great many are.

“The tyre market is saturated,” claimed Daniels. “The challenge for our distribution networks is first to draw the consumer into their shops so as to be able to explain how the value proposition of an inferior product could be compromised. Educating motorists by way of dedicated media campaigns remains our primary responsibility as tyre manufacturers.

“And then there’s the inter-face with the customer at retail level,” continued Daniels. “We desperately need to change the current selling process from one that is price-driven to one that adds value without compromising on margins.

“If we make it our collective goal to change mindset, we can achieve it,” added Daniels. “In a cost-benefit sensitive market like mining, imports appear not to match the performance standards as set by the local manufacturers. It would therefore appear that it is only a matter of time before discerning operators and consumers begin shying away from brands that doe not yield the same performance standards.”

Tyre manufacturers consolidate and streamline
In the quest to fight the onslaught from low cost imports and manage other variables impacting on productivity and profitability, South Africa’s four tyre makers have had to become highly creative.

“Our results for the final quarter of 2006 were most satisfactory,” claimed Continental’s Boezio, “due to a combination of streamlining our processes, our role definitions and our management principles. Our clear objective remains to be as productive as possible despite the current trading environment,” offered Boezio.

“Goodyear has also been focusing its efforts on streamlining our operation and making it more cost-efficient so as to achieve the desired economies of scale,” added Goodyear’s de Villiers.

“The challenge for Dunlop has been to consolidate certain sizes and product ranges – extending some product lines whilst reducing production on others in the interests of creating viable, volume-bearing production runs,” said Ceneviz. “Rationalisation has been on the cards for some time. Finally, we are re-engineering every facet of our business and product and are examining and analysing logistical issues in an effort to streamline our operation further.

“Granted this is not always easy given the proliferation of new models reaching our shores, some of which run on obscure sizes,” added Ceneviz.

“Local tyre manufacturers have also had to accept that when it comes to certain sizes, importing them remains the most viable route,” suggested Boezio.

“The way forward is to improve on our plant efficiencies,” concurred Daniels. “Plant advisors have been brought in for that specific reason, to assist us in optimising our input so as to minimise inefficiencies. Equally and as mentioned earlier, Bridgestone is set on working alongside its distribution partners in promoting a ‘service’ and ‘value’ proposition to its customers. The only way to remain profitable is by altering the current mindset that will allow us to charge a fair price for our services, beyond the sale of the traditional product. This will require an unprecedented level of creativity and innovation, but we’re up for it!”

The light at the end of the tunnel
But it’s not all doom and gloom for the tyre manufacturing sector. There are some definite positives we can take comfort from. For one, the car pool is steadily growing. Each year, as more and more previously disadvantaged members of our community become more affluent, the volumes of traffic on our roads and highways swell considerably. Automotive manufacturers are professing record sales, which can only mean good news for the tyre sector.

“There is no denying the recent boom of the new vehicle trade,” confirmed Daniels, “a trend which bodes well for the industry at large.

And for all that’s been said for and against globalisation, affiliations with global parent companies provide a measure of surety with regard to the future. At this juncture, all four local manufacturers enjoy global allegiances. “I firmly believe that only manufacturing concerns with international links have a chance of surviving in this market,” added Hankinson.

“As for the threat from imports, I am pretty confident the market trend will begin swinging back towards local product in the not too distant future,” added Daniels. “South African consumers may well be price sensitive as alleged, but they are equally quality conscious and we believe that quality will be the differentiating factor at the end of the day.

“Coupled to this, the emerging black market which is largely driven by status, is unlikely to sacrifice on quality when it comes to tyre replacement,” said Daniels.

“In the meanwhile, we need to focus on aspects to the business we can control such as trading smarter, improving our efficiencies and generating sustainable income via the services we provide,” suggested Daniels.

“Retaining our sights on constant innovation will enable us to continue producing world-class products that are sought after throughout the world,” added Ceneviz of Dunlop whose strong export policy has seen the new tyre maker withstanding a multitude of ‘tides’ over the years.

Boezio agreed: “Being part of a global manufacturing concern certainly offers advantages and opportunities in terms of foreign supply,” he said. “Currently, Continental Tyre SA supplies Europe and North America on various sizes and by focusing our efforts on becoming more cost-effective still, we can hope to further capitalise on these opportunities.”

Suffice it to say the local manufacturers agree on one thing – they’re here to stay, whatever the odds!